Artic PLC presented an expansion programme to invest in two different projects, in order to correctly evaluate its projects, it was used three evaluation models and the results is possible to see below:
3.1 Net Present Value (NPV)
The Net Present Value (NPV) illustrates the value between future cash flow of an investment and the amount of money invested.
According to the NPV was calculated for project D and E (See Appendix), it was showed that both projects have a positive NPV, € 32.43 and € 14.96 respectively. The most interesting project to invest in this case is project D due to it has a higher return than project E.`
NPV has a positive method of appraising investment opportunities due to they consider …show more content…
The payback was calculated ( See Appendix) and it stated the Project D presents an earlier return approximately 2 years while Project E is almost 3 years of return on investment. Therefore, the project D is more attractive due to the time required to recover the investment cost is lower than project E.
The principal problem for this approach is the fact the payback ignores the timing of the cash flows for this reason is not the best technique to calculate longer investments due to it has a greater potential for inaccuracy.
3.3 Internal rate of return (IRR) IRR (Internal Rate of Return) is the rate needed to match the value of an investment (present value) with their respective future returns on cash balances. The IRR calculation which was stated in this report (See Appendix) shows that the Project D is 21,58% while Project E is 15,05% it means that the Project D has a higher return than Project The disadvantage of using this appraisal model is not consider the changes in discount rates as well as the reinvestment assumption is not realistic. A further problem with the IRR method completely ignores the scale of investment. 3.4 Capital …show more content…
Artic PLC is in a reasonable financial position. Improvements in some areas of the company are needed if the company wants to increase its profitability.
The key areas of the company has to work on is the liquidity which they should looking for another funding sources, for instance, issue of shares. Other problem which Artic PLC has to concern is about the efficiency of the company in convert sales into cash which is lower than its competitors and sector.
Operation effectiveness is the key point to improve the company’s performance due to the company is investing in two new capital projects for increase the volume of sales. Moreover, Artic PLC should concern about the external and internal factors which could impact in the viability of the project.
If the company follow the suggestion stated in this report they could improve its financial performance and it also has greater chance to succeed with its new